Most people don't want to think about how they are going to fund their retirement. It can be a scary proposition: you need a lot of money to retire these days.
But that's creating a huge challenge for the future. Deloitte's analysis for its Funding our Future report found the current long-term savings gap – the additional annual savings UK citizens must make to maintain their lifestyle in retirement, solely from pension income – stands at £250 billion; £8,000 for every single person in the UK.
In Scotland, the situation is even more acute. Despite having the third highest gross annual earnings among the UK's regions, we have the joint lowest property wealth and second lowest financial wealth for people to access in their retirement.
Steps have been taken address the yawning chasm in our collective nest egg. Auto-enrolment should halve the number of people retiring with no pension. It will mean an additional seven million people start saving, reducing the gap by an estimated £50 billion.
Likewise, by the mid-2030s the pensionable age for men and women is likely to be 68 – cutting the savings deficit by another £38 billion.
Yet, without further intervention, the gap is expected to increase. The decline of Defined Benefits (DB) pension schemes, population growth and the increasing costs of healthcare and long-term care will combine to exacerbate the issue.
By 2050, these developments will see the long-term savings gap balloon to £350 billion, or £10,000 per capita. It could be even higher.
Measures need to be taken now to reverse this trend: education could be the key to making up the shortfall.
It's fair to say that many people don't understand their pensions. In a 2012 Department for Work and Pensions survey, 63% of respondents agreed that "pensions seem so complicated I cannot really understand the best thing to do".
That demonstrates the need for clearer communication and improved education. But, too few people have access to financial advice. The Retail Distribution Review (RDR), which was intended to make it easier to fund retirement, has precipitated a situation where the majority receive no professional guidance.
This creates a huge opportunity for others to educate the market: in both the private and public sectors.
Some companies are already going to schools and educating children about the importance of saving for the future and financial literacy. Others, such as Aegon, are using digital to make it easier for people to see the accumulated value of their pensions, ISAs and other savings on an easy to use online dashboard. This gives individuals more control and clarity over the funds they have built up over their careers.
Such moves are helping these organisations steal a march on their competitors by winning new customers in the short-, medium- and long-terms.
Equally, the Government can, and should, have an important part to play in educating people on how to fund their future. It has access to all the different pockets of population across the country – some of which are difficult to reach.
Whatever happens between now and 2050, meeting the £350 billion challenge will require a collective approach to educating the market. If it is not addressed in some way, then serious problems lie ahead. The question is: who will be the first to take up the mantle?
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